Level 3 bids for Chapter 11 rival

Bankrupt strategy

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Level 3 Communications Inc has begun its self-appointed task of carrying out a wide-ranging consolidation among global carriers by putting in a bid for Williams Communications Group Inc, which has been in Chapter 11 bankruptcy protection since April.

According to information leaked to the Wall Street Journal, Level 3 has offered $1.1bn for a company that operates a 33,000-mile US fiber-optic network. The one complication is that Williams has just negotiated a debt-for-equity swap that will enable it to emerge from Chapter 11.

Earlier this month Level 3 proclaimed its ambition to lead the consolidation amongst carriers when it raised $500m in bonds from a group of corporate investors including Berkshire Hathaway, which is chaired by investment sage Warren Buffet. This gave the Broomfield, Colorado-based company a $1.5bn war chest to build a worldwide communications empire.

Level 3 CEO James Crowe said the ongoing shakeout in telecoms is creating "extraordinary opportunities" as companies, their network assets, and customer bases become available.

Tulsa, Oklahoma-based Williams ran up debts of almost $6bn before it filed for Chapter 11 and will be the first of a number of acquisitions planned by Level 3 to build its global empire. Yet there are bound to be doubts at to whether Level 3 has the expertise to be a major player.

The company only avoided running foul of covenants attached to its bank loans by buying software resellers to boost its sales. Its first-half figures released earlier this month showed that its own communications revenue shrank by 22.3% to $554m. This hardly suggests a level of management skills to turn round other loss-making operators.